A general equilibrium interpretation of damage-contingent securities

R. Anton Braun; Richard M. Todd; Neil Wallace

doi:10.2307/253864

A general equilibrium interpretation of damage-contingent securities

R. Anton Braun, Richard M. Todd, Neil Wallace

Economics

Research output: Contribution to journal › Article › peer-review

6 Scopus citations

Abstract

Cass, Chichilnisky, and Wu (1996) show in an endowment economy that mutual insurance and securities contingent on aggregate states support optimal risk-sharing. We extend their result to a model with production in which risk is endogenous and beliefs about the aggregate state vary across individuals. We use the model to interpret the role of new securities that are contingent on measures of total damage from natural catastrophes. Plausible special cases of the model predict the trade pattern in such securities across diverse regions and predict that such securities will not represent actuarially fair gambles.

Original language	English (US)
Pages (from-to)	583-595
Number of pages	13
Journal	Journal of Risk and Insurance
Volume	66
Issue number	4
DOIs	https://doi.org/10.2307/253864
State	Published - Dec 1999

All Science Journal Classification (ASJC) codes

Accounting
Finance
Economics and Econometrics

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10.2307/253864

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AB - Cass, Chichilnisky, and Wu (1996) show in an endowment economy that mutual insurance and securities contingent on aggregate states support optimal risk-sharing. We extend their result to a model with production in which risk is endogenous and beliefs about the aggregate state vary across individuals. We use the model to interpret the role of new securities that are contingent on measures of total damage from natural catastrophes. Plausible special cases of the model predict the trade pattern in such securities across diverse regions and predict that such securities will not represent actuarially fair gambles.

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A general equilibrium interpretation of damage-contingent securities

Abstract

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